Taipei, Taiwan – Like many Hong Kong residents, accountant Edelweiss Lam spent the past week watching the city's stock market erase 14 months of gains as the Hang Seng Index fell below the psychological threshold of 15,000 points.
It was not the first time Lam, who has been investing on and off in Hong Kong stocks since the late 1990s, had seen this happen.
The index fell below 15,000 points during SARS in 2003, the global financial crisis in 2008 and the zero COVID lockdowns in 2022.
But while ebbs and flows are part of the investment game, Lam said seeing the key measure of Hong Kong's stock market decline “back to square one” felt different this time.
“I can't seem to see the future,” Lam told Al Jazeera by phone from Hong Kong.
The reason, Lam claimed, is China.
As Beijing tightens its control over all aspects of life in Hong Kong, including the economy, and pessimism persists about the state of China's post-pandemic recovery, investors have been voting with their money and looking to other markets.
More than a quarter of a century after Hong Kong's return to China, the Hang Seng is more or less back to where it was during its final days as a British colony.
On Friday, the index was around 16,100 points, lower than on July 1, 1997, the day of the delivery.
During the same period, stocks in the United States, Japan and other popular markets have flourished.
Investors in the SP500, the most popular measure of US market performance, have seen their money grow almost tenfold since 1997.
“If there is any new announcement from the Chinese government on regulations or control of any industry, then the market can fluctuate very seriously,” said Lam, whose investment portfolio includes blue-chip stocks, fixed deposits and property.
“The relationship between Hong Kong and China is getting closer, control is tighter, so we cannot ignore what they are doing in China.”
Hong Kong has had a front-row seat to China's crackdown in recent years, from the imposition of a draconian national security law on the city to tighter regulation of corporate giants like Alibaba and Tencent and raids on foreign companies. in mainland China.
Many of China's largest companies are publicly traded in Hong Kong and China and make up a large part of the Hang Seng Index along with Chinese banks and other technology companies.
At the same time, China's economy has struggled to recover from the impact of COVID-19 and Beijing's tough pandemic restrictions, amid persistent structural problems including a shrinking population, high local government debt and a slowly evolving real estate crisis.
Gross domestic product officially grew 5.2 percent in 2023, the weakest performance in decades, excluding the pandemic.
Despite Beijing's insistence that China is open for business, foreign investor confidence is waning.
Last year, China recorded the first drop in foreign direct investment in 12 years, falling 8 percent to $157.1 billion.
“When we look at the broader business sentiment, both for the financial sector and the broader economy, first of all, the economic fundamentals in both Hong Kong and China are not doing very well right now,” said Chim Lee, an analyst. of China at the Economic Intelligence Unit, he told Al Jazeera.
Lee said China's achievement of its economic growth target last year was “not particularly impressive” as Beijing set a relatively weak target.
Analysts estimate that about $6 trillion – equivalent to more than a quarter of the US economy's total output – has disappeared from Chinese and Hong Kong stock markets since the beginning of 2021.
China's CSI 300 index, which measures the top 300 companies on the Shanghai and Shenzhen stock exchanges, has fallen more than 40 percent over the past three years, while the Hang Seng has fallen 50 percent during the same period, according to Bloomberg data.
Instead, investors are flocking to other markets such as Japan and the United States, where analysts are predicting a bullish 2024.
The Nikkei 255 index, an index of the main companies on the Tokyo Stock Exchange, recorded highs not seen in more than 30 years last week, while the S&P 500 in New York closed on Thursday at a record high for the sixth consecutive day.
“[Hong Kong’s] The economy may now be nothing more than a large rounding error in China's GDP, but it still plays an important role in financial and capital market transactions to and with mainland China. Therefore, it is evident that the bearish sentiment and poor stock price valuations in China carry over to [Hong Kong] too,” George Magnus, an associate at the University of Oxford’s China Center and a research associate at SOAS, London, told Al Jazeera.
Hong Kong's decline in rights and freedoms – which are supposed to be guaranteed until 2047 under an agreement known as “one country, two systems” – has added fuel to the crisis of confidence.
Since the passage of the national security law in 2020, the city's political opposition and independent media have been virtually eliminated and hundreds of people have been arrested for non-violent crimes related to activism and expression.
Hundreds of thousands of Hong Kongers have left the city along with their money amid Beijing's strict control.
Lam said she decided to move her pension fund overseas last year and plans to sell her remaining stock investments in Hong Kong at a loss.
“They say they want to do something, but we don't see any real action,” Lam said of the government's economic policy.
In October, Hong Kong slashed stamp duty on property sales and share transfers, but consumption and tourism have yet to recover to pre-pandemic levels.
Analysts say reviving the economies of Hong Kong and China will require much bolder measures.
Beijing is considering a possible $278 billion bailout plan for the stock market, Bloomberg reported this week, citing sources close to the matter, but many analysts argue that broader structural reforms are needed to restore investor confidence.
A similar rescue plan implemented after a 2015 Chinese stock market crash produced mixed results, even though the government acted quickly and the overall economy was on more solid footing.
Memories of that rescue plan and concerns that Beijing will not implement difficult but necessary reforms are one reason the rescue plan has received a lukewarm response, said Alicia García Herrero, chief Asia Pacific economist at Natixis.
“Here it is really the market that says: I'm sorry you are not growing. I don't trust your numbers; its future looks bleak, which was not the case in 2015. It was perceived as a temporary shock, so I think this is the difference to begin with,” García Herrero told Al Jazeera.
Beijing also arguably has less room to maneuver this time thanks to its high debt levels and limited scope for monetary easing.
“They've used so many bullets that the credibility of the next bullet is less,” he said.
